Eric Sprott on Silver Manipulation

In a recent interview, Eric Sprott of Sprott Asset Management commented on the topic of Silver manipulation.

As we have discussed at length, the silver market is so small it lends itself to being held down artificially.

In our last post, Harvey Organ noted that 101, 076 contracts traded on the COMEX on Monday of this week (driving down the price of Silver significantly). Each contract is worth 5,000 oz's. This means over 505 million oz's traded that day!

To put this into perspective, there are only 800 million oz's of silver produced in any given year. The 505,380,000 oz's represents almost 72% of worldly silver production if you include China and 84% if you do not include China. The reason I put the figures for China is simply because China keeps every oz of silver it produces.

And the banking cabal supposedly flooded the market with 500 million oz's of unbacked paper contracts in one day!!!

Sprott was asked what measures might free up the market movement?

• As you probably know, all sort of lawsuits accused HSBC and JP Morgan of manipulating the price of silver in 2008 when it went down. In that situation, quite frankly, I was the most surprised and disappointed person in the world to see that in the middle of a financial collapse, the price of silver—and even gold—didn't rally. It seemed so unlikely that that should've happened. In my mind, that consequentially suggested forces might have been at work that weren't normal in those markets. But the manipulation will end, if there was manipulation. I'll explain why.
  
  On commodity exchanges, the majority of transactions never settle in physical delivery. Just as an example, of the 800 million ounces of silver produced in a year, there are days when the commodities markets will trade 500 million oz. Well, obviously, nobody is settling this stuff because you can't have an 800 million oz annual market and trade 500 million oz in a day. These are just people pressing buttons on computers—you know with their algorithms or whatever—but they're not taking physical delivery. Manipulation takes place when a person who has more money than another person can drive the price of a product up or down, and it's easy to manipulate a market wherein all you need is fiat currency.
  
  Manipulation will end when enough people say, "You know what? I'll take delivery of that product." I think that's what's happening in silver. More and more people are taking delivery. The dealers who are short something like 400–500 million oz. have like 42 million oz. in storage. Our organization alone owns more than 42 million ounces. That's not a lot of silver to cover a short bet of 400–500 million ounces. With every delivery period, those inventories keep going down. They're going to go down to the point where everyone realizes there is no silver left. As a matter of fact, for all intents and purposes, I think there might be no silver available today, as some mints are no longer taking silver coin orders because they just can't provide them. So, it's obvious to me that this supposed silver inventory doesn't exist anymore and that ends the manipulation.

Eric Sprott was then asked about the fact that there are far more investors in the silver sector right now than in previous decades and what impact that is going to have on those manipulating the silver market.

• (Are there more investors in the sector right now?] Absolutely. I think the phrase that probably captures silver's behavior, to which it's always been referred, is "poor man's gold." I think those who haven't bought gold are, to some extent, seeking refuge in silver. But anybody who's been a student of the silver market, as I myself might qualify, realizes we have a very tight situation here. And as this momentum builds to participate in the silver market, the shorts are just going to get overrun and the price could get excessively explosive.

I'll say it again. Silver is the opportunity of the decade, the shorting antics of this week notwithstanding.

Beware the Ides of Farce.

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Beware the Ides of Farce (updated)

As the stock markets and precious metals plunge, a little Ides of March humour courtesy of williambanzai7 (picture above).

One of the key dynamics to watch here is the US dollar index. The Japan disaster is your quintessential black swan event. And as such there should be a flooding of capital into the safe haven of the US dollar.

That isn't happening this time.

And in the midsts of chaos, the banking cabal is taking the opportunity to try and slam Gold/Silver.

As always, analyst Harvey Organ comes up with an excellent analysis of what is happening at the COMEX.

• "The banking boys showed up in London and in the USA doing their usual, by raiding paper gold and paper silver. The real stuff, they have problems getting. Silver fell by $1.70 to $34.12, as the bankers supplied massive unbacked paper in their attempt to show the world that everything is fine.
  
  The confirmed volume for Open Interest yesterday was quite good at 61,854. The estimated volume at the silver comex today was a monster: 101,076. That kind of shows you what kind of unbacked paper was supplied today and our regulators as always look the other way at this criminal behavior."

A farce to be sure. But the key dynamic is the lack of capital fleeing into the US dollar.

The COMEX is clearly stressed to provide physical silver. In a dual attempt to prop up the US dollar and shake silver from those holding it, the banking cabal is massively raiding the price of silver.

The intent is to create a panic and fear that the bottom will fall out from beneath these recent record high's. I suspect we will see another massive raid tonight to drive the price to the mid $33.00 range.

It's such an odd scenario. Make the price cheaper so that people won't buy more?

But with capital not flowing into the US dollar, will this tactic simply create a surge in precious metal buying?

We shall see.

On another note, on last night's Fox Business television network program "Follow the Money", five minutes were devoted to complaints of manipulation of the silver market by JPMorgan Chase and HSBC.

Cited specifically was the testimony of London silver trader and whistleblower Andrew Maguire at the March 2010 hearing of the U.S. Commodity Futures Trading Commission.

Video of the segment has been posted at the Fox Business Internet site under the headline "Wall Street Conspirators Driving Spike in Silver" and you can :
find it here.

Sprott Asset Management has also come out with an excellent article titled "Debunking the Gold Bubble Myth". You can read it here.

Eric Sprott has also done an interesting interview with comments on Silver Manipulation, I will be posting excerpts later tonight after 10pm PDT.

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Our prayers for the people of Japan

I was going to post on Silver tonight. Instead a moment of prayer for the people of Japan in this dark, difficult time.

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Anonymous Mortgage Fraud allegations

As the vortex of news media intensifies on the looming nuclear disaster in Japan, let's take a moment to look on the results from the first data dump from Anonymous last night.

Anonymous claimed that they had emails and documents which proved "fraud" had been committed by Bank of America employees in the US foreclosure scandal.

This revelation was coming a day after the SEC prepares to let Lehman executives walk for their illegal actions in the Repo 105 Fraud.

As the information provided by Anonymous was analysed, what emerged was an ugly story wherein a whistleblower is accusing Bank of America with executing a large scale Force Place insurance scheme with the cooperation of the mortgage servicers.

The charge made in this Anonymous release is that Bank of America, through its wholly-owned subsidiary and the help of cooperating servicers, engaged in a mortgage borrower abuse called “force placed insurance”.

This is not legal.

In 2003, famed subprime servicer lawbreaker Fairbanks signed a consent decree with the FTC and HUD over abuses that included forced placed insurance. The industry is well aware that this sort of thing is not permissible.

This is basically a scheme to fatten servicer margins. If this leak is accurate, the servicers at a minimum cooperated. If they got kickbacks (they will call them commissions) they are culpable and thus liable.

Servicers lose tons of money on portfolios with a high level of delinquencies and defaults. The example of Fairbanks, a standalone servicer whose subprime portfolio got in trouble in 2002, is that servicers who are losing money start abusing customers and investors to restore profits. Fairbanks charged customers for force placed insurance and as part of its consent decree, paid large fines and fired its CEO (who was also fined).

Logically... if these allegations are true... a similar fate should befall Bank of America.

It makes the efforts by those in power to sweep the whole Fraudclosure Affair under the carpet to protect the banking cabal immensely more difficult.

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Update on BOA leaks

The information may be released at 9pm PDT (5am GMT) at this site:

#BlackMonday Ex-Bank of Ameica Employee Can Prove Mortgage Fraud Part 1

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Hacker vs Hacker

Besides checking out the reaction of Silver/Gold in the overnight markets to the increased money printing announced by the Bank of Japan (contrary to expectations that the BOJ would injected "only" JPY2 trillion in its emergency operation earlier, the BOJ came out with a stunner, putting in a whopping 7 trillion yen into Japanese money markets), the compelling internet theatre tonight will lie elsewhere.

At 9pm tonight PDT, 5am GMT, the hacker collective Anonymous, which goes under the handle OperationLeakS, will be releasing what they claim are emails and documents which prove "fraud" was committed by Bank of America employees in the foreclosure scandal.

This is the same group we mentioned yesterday who announced they will be taking on the Federal Reserve in this communique.

A source familiar with the story has reported that there "should be a round of emails, then some files, possible some more emails to follow that."

Are they a wingnut group?

Well... this group has delivered some pretty spectacular goods in the past.

The documents should be released Anonleaks.ch. This is the same site where Anonymous posted thousands of internal emails from hacked security company HBGary last month. That leak exposed a legally-questionable plot to attack Wikileaks and ultimately led to the resignation of HBGary CEO Aaron Barr.

The story of HBGary is pure hacker espionage, reminiscent of the old MAD magazine Spy vs Spy antics.

HBGary Federal is an "Information Security" contractor. In early February 2011 the company's CEO, Aaron Barr, was quoted in a published article saying that he had identified the leadership of the group Anonymous and planned to disclose their identities at the B-Sides Security Conference in San Francisco.

Anonymous launched a preemptive strike on HBGary. By combining a SQL injection attack with sophisticated social engineering attacks, the group gained access to the company's Web and e-mail servers as well as the Rootkit.com Web site, a site also launched by HBGary founder Greg Hoglund.

The attack against the so-called security experts was more than successful. When the day of the B-Sides Security Conference arrived, the most telling display was at Booth 556 where HBGary displayed a simple sign saying that it had decided to remove its booth and cancel scheduled talks by its executives...

What is important to note here is that HBGary's founder, Greg Hoglund, is one of the smartest security folks around - hands down. He's a recognized expert on malware and, literally, wrote the book on rootkit programs. HBGary Federal's customers included the U.S. Department of Defense as well as spy agencies like the CIA and NSA.

He was, however, chump change for Anonymous.

The group accessed tens of thousands of company e-mail messages and published them on the Internet.

The HBGary Federal documents — to Hoglund's surprise, he says — revealed unethical and potentially criminal plans to build a digital-espionage-for-hire business.

Services offered? Blackmail, espionage and data theft.

The plans were conceived in part by HBGary Federal's top executive the aforementioned CEO Aaron Barr, a former U.S. Navy cryptologist. Barr was working in conjunction with two other security companies. In a bit of cloak-and-dagger grandiosity, the firms dubbed their collaboration Team Themis, after a titan of Greek mythology who embodied natural law. Team Themis proposed to electronically infiltrate grass-roots organizations opposed to the U.S. Chamber of Commerce, the powerful Washington lobbying organization.

In a separate and even more legally dubious proposal intended for Bank of America, the group laid out a plan to infiltrate WikiLeaks and intimidate its supporters.

The schemes the security firms came up with were Nixonian in scope and Keystone Kops-like in execution. In a 12-page PDF sent to Hunton & Williams, the Washington law firm representing the U.S. Chamber, Team Themis suggested creating dummy documents and online personae, and scouring social networks such as Facebook for intelligence on their prospective client's most vocal critics. In the proposal for Bank of America, the security firms suggested hacking WikiLeaks itself to expose its sources.

But now the tables have been turned.

Hoglund and his 30-person company are now battling fallout as their plans were exposed. Employees of HBGary and their families have been besieged with hostile phone calls and e-mails, including some death threats, and the company canceled its presentations at the annual RSA cyber-security conference. News sites that cover computer security have plumbed the document dump, turning HBGary and Barr into objects of ridicule. Barr resigned on Mar. 1 and declines to speak publicly about the ordeal.

Tonight Anonymous turns it's attention to Bank of America.

Monday promises to be an entertaining day.

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Royal Bank: BOC rate to double before year end

Bank of Canada Governor Mark Carney has been warning about being prepared for rising interest rates for over a year now.

As part of its economic outlook for 2011, Royal Bank of Canada projects that the Bank of Canada overnight rate will double from 1% to 2% by year-end.

• Our forecast is that the Bank of Canada will restart its tightening campaign in late May 2011 with the overnight rate forecasted to rise to 2.00% by year-end from 1.00% currently. Interest rates, which have increased in the past three months, are likely to grind higher with short-term interest rates moving up more than longer-term yields. The gradual pace of policy tightening combined with anchored inflation expectations and less fiscal pressures than many other countries will likely result in less upward pressure being exerted on longerterm interest rates resulting in a flatter yield curve and Canadian long-term yields holding below their U.S. counterparts.

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Operation Empire State Rebellion

I've got my popcorn and I'm tuned in to watch the Silver story.

Meanwhile, on another channel, a second story unfolds.

I'm gonna need more popcorn, I think. On Monday we will see if this (in)famous hacker group - known as Anonymous - is serious about this video.

On Monday they have threatened to release evidence of fraud by Bank of America in the foreclosure saga. Above is their just launched communication #1 in Operation "Empire State Rebellion". See more on Zero Hedge.

We do live in interesting times.

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The end of QE 2 and rolling over debt.

Excellent interview with Jim Rickards, Senior Managing Director for Market Intelligence at Omnis, Inc. Rickards has been a direct participant in many of the most significant financial events over the past 30 years including the 1981 release of hostages from Iran and was also the principal negotiator for the government sponsored bailout of LTCM. His clients include private investment funds, investment banks and government directorates in national security and defense. He is an advisor to the Committee on Foreign Investment in the United States and Support Group of the Director of National Intelligence and recently testified before Congress on the causes of the financial crisis.

There has been a great amount of interest in what is going to happen with the end of QE 2 in June. There have been suggestions that the Federal Reserve will end QE2. By doing so it will appear that the Federal Reserve will be pulling in it's horns, causing inflation will go away, the economy will rebalance and precious metals (Gold/Silver) will then suffer a big collapse.

Rickards explains how this is a head fake. The rollover from the intervention that the US Federal Reserve has already undertaken is so large that the Fed can - with this rollover - buy all the upcoming outstanding debt and monetize all that debt without an 'official' QE3.

There will be speeches and press conferences announcing the end of QE2, but what they are not going to say is that it is never over because the rollover of the existing portfolios is so big that they have $750 Billion a year of buying power to keep pumping back into monetization without expanding the balance sheet.

Analysts believe this charade of the end of QE2 will be used to smash down metals and commodities.

If true, we are going to be bombarded with a giant smokescreen in a desperate attempt to get people to back off from Silver and Gold.

If investing in Silver and Gold interests you, check out the Rickards interview at this link.

Much more on this in the days and weeks ahead.

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More on the Canadian Housing Bubble

On March 18 new government rules for mortgages come into effect into Canada. Announced with a 60 day delay before implementation, the rules will reduce the amortization period Canadians can spread their mortgage payments over. Starting mid month, the term will be dropped from 35 years to 30 years. The newsclip above talks about the looming changes.

Check out how the news story uses a $300,000 mortgage to analyze the impact. First of all you have a Canadian mortgage broker who dismisses the $106 per month increase in monthly payments the amortization change will bring to that $300,000 mortgage example. She opines it's as easy to handle as 'skipping one meal at a restaurant' per month.

Now consider that Vancouver's average single family house price hit an outrageous $1,173,395 last month.

A $300,000 mortgage? For a shoebox apartment somewhere, perhaps.

As Canadians are consumed by record breaking household debt, consider that total household debt in Canada now tops $1.5-trillion, or three times our nation's national debt, with a debt-to-disposable income ratio now at more than 145%.

Warnings are now popping up all over about our looming debt situation and borrowing habits.

Bank of Canada Governor Mark Carney has warned several times that debt levels are bloated, and Finance Minister Jim Flaherty is bringing in the above mentioned mortgage rule changes.

Recently a visiting scholar at MIT's Sloan School of Management also commented on our debt binge.

Derek Dunfield, a neuroscientist and visiting scholar in behavioural economics and marketing at MIT, warned in a paper that Canadian consumers "may soon be overwhelmed" given the inevitable rise in interest rates.

High debt levels could have dire economic consequences and "the historically high levels of household debt present two possible problems for the Canadian economy," said Dunfield.

"One scenario is that interest rates rise, house prices drop, and more people begin defaulting on their credit card debt and mortgage obligations. An equally worrying - and perhaps more likely scenario - is that interest rates go up a little, and more of people's disposable income goes to repaying their debt, leading to a significant reduction in consumer spending. Since personal spending on consumer goods and services accounts for 58 per cent of the Canadian gross domestic product, this decrease would provoke a 'made in Canada' recession.".

With that theme in mind Action Canada has released a cartoon short as part of it's new website, debtcrunch.ca, to encourage Canadians to consider the reprecussions of their debt choices.

And for those who would like a primer on the role the Canadian Mortgage and Housing Corporation (CHMC) has played in our housing bubble, there is this cartoon that joins the Xtranormal craze for simplifying complex issues.

For our non-Canadian visitors, CMHC is Canada's version of America's Freddie Mac and Fannie Mae.

This is not going to end well,

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Poison Pill or Act of Desperation?

The Silver community continues to debate the latest developments from JP Morgan.

Last Friday the CFTC released their monthly Bank Participation Report (BPR) which revealed a startling statistic. After 3 months of desperately trying to cover their gigantic short position as the CFTC approached its March 28 deadline to impose position limit rules, the US Banks that control the price of silver decided to go back to their reckless shorting routine...BY A HUGE AMOUNT!

• On November 2, 2010 those Banks were short 30,760 contracts (each contract representing 5,000 oz of silver).
• On December 7th, 2010 they were short 26,332 contracts.
• On January 4th, 2011 they were short 22,658 contracts.
• And on February 1st, 2011 they were short 19,706 contracts.

For three consecutive months, as the CFTC Enforcement Division began hearings to set position limits, the US Banks were reducing their massive short position.

Then, on March 1, 2011, the latest BPR was posted and this trend was dramatically reversed and the US Bank short position grew by 5,880 contracts to stand at 25,586 contracts.

This is an increase in a short position of close to 30 million ounces. More significantly it appears that while this position was previously held by up to 8 US Banks, now JP Morgan stood alone as the lone short contract holder.

That is a STUNNING amount of new shorts added during the month of February. Even more significant when you consider the price of silver actually managed to RISE 25% during this time.

Had these new shorts not been placed on COMEX silver then the price would almost assuredly have exploded to over $50 per ounce and may have even gone to $100 per ounce.

The moves were clearly designed to keep a lid on the price of silver. But with the March 28th deadline for position limits looming, why would JP Morgan place themselves in such a predicament?

Two plausible reasons are being discussed around the blogosphere, both of which could be at play. I have a third, which I will offer at the end of the post.

(1) A Poison Pill

As the CFTC finally gets serious about enforcing the commodity laws, JP Morgan has tried to close out their 150 million ounce short position but they couldn't do it in time.

Once they saw that they couldn't get out of the hole they had dug for themselves (and as their position went viral in the blogosphere), they had to crank up their shorts to stop the price of silver from going parabolic.

Now they are trapped with no way to cover their short position before the 28th deadline.

In response, have JP Morgan decided on a 'scorched earth' silver shorting strategy? Are they opting to increase the size of their short so much that they become Too Big To Fail in the Silver Market?

Is this a way to protect themselves from the inevitable default in the COMEX silver market?

A skyrocketing silver price would destroy the US Bank short position and "Too Big To Fail" would have to come into play in both the implementation of position limits as well as potentially blaming the CFTC and Dodd-Frank Law for too much regulation which would bring down the US banking system.

The speculaton is that by making JP Morgan's silver position so large that it could threaten the survival of the Bank itself then JP Morgan must be bailed out to protect the entire system... in essence, the increase in shorts are a poison pill.

That brings us to...

(2) The Derivatives Threat

In previous posts we have mentioned the rumour about a group of former JP Morgan commodities employees who had allegedly banded with some hedge funds to execute a short squeeze on JP Morgan's short silver position.

This group has posted numerous messages on internet chatboards and on November 20th, 2010 the following message was posted on a yahoo chatboard:

• JP Morgan is in worse shape then we ever dared to hope.
  
  This is what I am now hearing from traders on the floor. These traders are not even sure if Blythe knows the full extent of JPM's silver exposure.
  
  When I first started to realize that JPM has shorted far more silver than they could ever hope to cover, my first question was "why would they do that?" Not only that, why do it with a commodity where you must report your positions through the COT and Bank Participation Report? After all,the whole world can see what you are doing.
  
  Now I know the answer.
  
  According to Max Keiser and now a couple of other independent sources, it seems the reasons why first Bear Stearns and now JPM are so desperate to manipulate the price of silver down is due to the fact that BS and JPM shorted billions (yes billions not millions) in ounces of silver through their derivatives.
  
  Just like Joe Conason at AIG, silver shorting through derivatives have caused literally billions in losses not the millions that we know about publicly. That is why JPM has been so desperate to manipulate the price of silver downward so blatantly.
  
  If I am right about this, then JPM will be dead when silver hits $60 or so.
  
  Based upon the COT and BPR, if silver hits $60, JPM will lose around an additional $6 billion dollars, a large number but not nearly large enough to bring down mighty JPM.
  
  But what is not known is that due to the way that its derivatives are written, JPM's losses are exponential once silver breaks $36 or so. Rumors has it that JPM could be losing as much as $40 billion once silver is above $50. It has something to do with how the derivatives are written with payment tied to the price of silver.
  
  Since JPM was a price manipulator with respect to the price of silver, JPM assumed that any derivative payments tied to silver would be less than they would be tied to some other index like the CPI or TIPS implied inflation index. JPM's inability to hold down the price of silver relative to other measures of inflation will cause unbelievable losses due to a mismatch in their derivative structures.
  
  In essence, JPM has bet (a huge amount) through derivatives that silver will never outperform inflation. And why not,since JPM assumed that it will always be able to manipulate the price of silver. We have now come to understand that JPM's loss exposure to silver is much greater than we have ever dared to hope.

In another posting a few days later, this thought line continued:

• In an effort to clear up some recent confusion regarding my latest posting, I will try to explain what I have recently uncovered.
  
  JPM's current short silver position is estimated to be approximately 150 million ounces down from the recent 180 million ounces in August. The losses from these positions are easy to figure out. For every $10 rise in the price of silver, JPM will lose $1.5 billion.
  
  But what I have recently discovered is that through its derivative positions, JPM will lose about 5 times that amount once the price of silver is above $36. And once silver is above $45 dollars, JPM's losses will increase to 8 times the amount of theur losses in their short positions. The reason is that as the price of silver increases, certain provisions get activated which multiplies the losses.
  
  One reader asks the question why isn't the price of JPM going down to reflect the losses in silver. My answer is that the price of silver is not high enough to begin to trigger losses in their derivative positions. But once silver approaches this critical level say around $36, then you should begin to see the price of JPM stock begin to reflect these losses.
  
  In fact, traders are saying that once the price of silver surpasses the stock price of JPM, then for every dollar the price of silver go up, JPM should lose around 70 cents or so. This means that if silver hits $60, JPM will be a single digit stock.
  
  JPM's market cap is around $170 billion. If silver losses are as great as $40 billion in cash, then JPM will be insolvent. Period.
  
  From your former traders (whom you dismissed so callously)

How valid is this speculation?

I have no idea.

There is certainly a fierce battle being waged around the $36 dollar level which is consistent with the November claims that JP Morgan would be in serious trouble if silver broke above $36.

The third option I have not seen considered by bloggers is that JP Morgan has inside info that the CFTC position limit proposal to be released March 28, 2011 has been sufficiently watered down to be ineffective. This would mean that JP Morgan can go back to their old ways unencumbered and that they have already started to do so.

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A Summer Commodities Rout?

In the US, the National Federation of Independent Business Foundation has come out with it's March survey.

It says that small business optimism gained 0.4 points in February, rising to 94.5 from 94.1.

Some media outlets have jumped on this saying that it shows “recovery is taking hold,” based on that tremendous .4 rise in an index that is still well in negative territory below the even 100 mark.

Talk about grasping at straws!

As you all know, Consumer Credit is so important to our economy (never mind the massive amout of deleveraging that must occur to allow our economy to rebalance).

Yesterday the state of Consumer Credit was reported. Coming in at an annualized rate of only $5.0 Billion in the United States, it is down from December’s $6.1 Billion.

If you remove student loans, this number would have been negative. If you remove the $25 Billion of government Non-Revolving credit included in this report, it would have been hugely negative. There was a large split between Revolving and Non-Revolving Credit, Revolving credit being negative and Non-Revolving positive.

It's further evidence that the consumer economy is sputtering.

By while the average American has come to grips with the fact he can't keep borrowing his way to prosperity, compare the creation of Consumer Credit to what the US government is creating outside of the Consumer Credit report.

The Congressional Budget Office yesterday announced that the Federal Government’s deficit for the month of February was the largest EVER, at $223 billion! That’s nearly a quarter TRILLION dollars in just one month! It is four times the amount of savings being proposed by the Republicans, and 30 times the saving proposed by the Democrats in their “budget talks.” Talk about exponential growth and impossible math, this is it.

...And that's what they admit to. The part they're hiding with accounting manipulation is even larger.

Which brings us to Quantitative Easing.

There is talk that when QE2 comes to an end in June that the US Federal Reserve will start to withdraw it's stimulus.

Are you kidding?

It can't. Plain and simple.

However there is huge pressure to do so.

Some believe that the US Federal Reserve may just allow a break to demonstate the impact on the economy before resuming QE3 in the fall.

Chris Martenson has come out with a piece he wrote (via Zero Hedge) that follows up on this theme you may find interesting. As Martenson says, "there's a scenario that could play out between May and September in which commodities (including my beloved silver) and the stock and bond markets could all sell off between 20% and 40%. The trigger will be the cessation of QE II and a multi-month pause before QE III."

Click on the link for the full article.

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Real Estate in Vancouver suburb of Richmond goes parabolic

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COMEX update

An evening post for you. Make sure to check out the earlier post "Is a desperate JP Morgan now the only large institution shorting the Silver market?"

The numbers are in from the COMEX and what is developing is unprecedented in COMEX history.

The number of open contracts standing for delivery of physical silver for the March deliver dropped from 1876 to 1675 for a drop of 201 contracts (each contract representing 5,000 ounces of silver), but there were only 5 delivery notices today.

And it's that lack of physical delivery that is the story.

According to Harvey Organ, "for the 5th straight day we have had little notices to deliver. Actually the only delivery has been through the customer who loaned his silver to the dealer to settle upon 1.2 million oz. The 201 contraction of OI for March can only mean that these were settled with cash and a handsome profit."

It is very clear the COMEX is seriously stressed to deliver the physical silver for the March delivery.

The topic of JP Morgan's massive short increase in February is generating lots of discussion in the blogosphere. The fact that JP Morgan increased their short position by 5,880 contracts (or 29.4 million ounces) in a month where the price of silver rose by 25% is astonishing. The general consensus is that the price of silver would almost assuredly be over $50/oz right now if JP Morgan had not dumped 30 million ounces of paper silver on the market. The fact that silver rose by $7 while this wsas occuring is a testiment to the huge demand for silver.

It is worth noting that the current premium to NAV of the Sprott Physical Silver fund is now 20%.

If you are unfamiliar with the terms, regular open-end mutual fundsh are bought and sold directly from the fund company at the net asset value (NAV) of their portfolio securities.

ETFs and closed-end funds trade at prices determined by the market forces of supply and demand. A fund that trades at a price higher than its NAV is said to trade at a premium to its NAV.

Sprott is currently trading at a premium of 20% over it's net asset value.

This is a strong indication of the reality that actual phyiscal silver is valued higher than the price that manipulated paper silver is trading at.

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Is a desperate JP Morgan now the only large institution shorting the Silver market?

At the end of yesterday's post, I pointed out that I had come across some interesting observations that could make March/April a wild ride.

After gradually decreasing it's short exposure to Silver over the past few months by covering to the tune of 11,000 contracts, it was being suggested that JP Morgan had suddenly ramped up it's activity by adding 6,000 shorts in February.

Today Ted Butler, a silver market analyst whose company Butler Reseach Ltd has been publishing unique precious metals commentary on the Internet since 1996 and has been instrumental in bringing the issue of Silver manipulation to the forefront of the CFTC, has came out with a shocking allegation.

Butler confirms yesterday's observations and has issued a report that states JPMorganChase apparently has greatly increased its short-selling in silver. In doing so, JP Morgan has increased the concentration of the market's short position which is, by definition, a manipulation.

• The big surprise was in the silver COT (Commitment of Traders Report), where the big 4 increased their net short position by 3000 contracts on the previously mentioned reduction of 1300 contracts in the total commercial net short position. This increase in the big four’s short position broke the pattern of a reduction in the concentrated short silver position that had been in force for months. The increase in the concentrated short silver position was so unexpected by me that I thought, at first, it must have been a mistake.
  
  Since the Bank Participation Report was released late yesterday, an hour or two after the COT, my first thought in the interim was that it would not be JPMorgan increasing its concentrated short position, but most likely the other three entities in the big four. After all, with all the negative attention (and losses) accruing to JPMorgan and its big silver short position, there would be no way JPM would have accounted for the 3000 contract increase in the COT for the big four.
  
  If the silver COT was a surprise, then the Bank Participation Report was a shocker.
  
  There was a net increase in the US bank category of 6000 contracts to 25,000 held net short in silver.
  
  JPMorgan’s net silver short position, which had decreased by 11,000 contracts over the preceding three months to 19,000, had suddenly ballooned to 25,000 contracts (125 million ounces). From my reading of both these reports, it appears that the big increase in silver short selling by JPM took place during the last COT reporting week, even for the Bank Participation Report.
  
  Before I continue, let me explain that I consider JPMorgan to effectively account for all or the bulk of the entire US bank category in the Bank Participation Report for a variety of mathematical reasons. However, it matters little if there is another US bank also holding a significant net short position in COMEX silver, as all that would mean is that two US banks are colluding to manipulate the price of silver and not just one bank acting alone.
  
  Two and a half years ago, I had a very similar experience of shock over a Bank Participation Report. This was before anyone knew that the Bank Participation Report even existed. The August 2008 Report caused me to write a series of articles that started with “The Smoking Gun” in the fall of that year.
  
  In turn, my analysis and writing led to the current CFTC silver investigation (still unresolved) and the revelation that JPMorgan was the big COMEX silver short by way of taking over Bear Stearns. I further believe that the revelation of the true size and nature of the concentrated silver short position has contributed to the current movement towards position limits by the CFTC.
  
  As much as the August 2008 Bank Participation Report was shocking, the current one is even more so. That’s because we know so much more today than we did back then.
  
  We have waited two and half years to hear anyone legitimately explain how a US bank holding a short position equal to 25% of world production isn’t manipulation.
  
  No explanation has been forthcoming, nor is it likely to ever be offered. We know now that concentration is the prime requisite for manipulation. To witness the most concentrated participant suddenly increase its silver short position by more than 30% is something almost beyond comprehension.
  
  Let me walk you through the mechanics of what just took place and then I’ll speculate on the motivation of JPMorgan increasing its silver short position so dramatically.
  
  Over the past two COT reporting weeks, it has been primarily a commercial versus commercial type affair. The big technical funds have largely refrained from adding to their net long silver position, even though prices have climbed very sharply. Two weeks ago the raptors (the smaller commercials away from the big 8) increased their net short position to 4000 contracts, the highest level in four years. The raptors were selling to the smaller unreported category traders who were buying. This week, the raptors bolted from their entire short position, buying it back completely and leaving them flat (not net long or short). JPMorgan was the sole seller to the raptors’ buying, resulting in the big increase in JPM’s short position.
  
  As far as the motivations behind this trading, the most plausible explanation for the raptors running from their newly initiated big short position is the stark reality that shorting silver has been a very bad deal.
  
  My guess is that the raptors did their homework on silver only after they put on the big short and started to lose money on rising prices. That homework persuaded them to get off the short side of silver pronto, which they did.
  
  JPMorgan’s motivation for suddenly and greatly increasing its silver short position is less clear and more troubling. My own guess is that the JPMorgan silver trader thought he had no choice but to sell many more contracts short in order to control the price and protect their existing short position. That’s because there was no one else left to sell. If JPMorgan didn’t sell, no one else would have (at prevailing prices).
  
  That’s the problem and it goes to the heart of the crime. The raptors didn’t want to sell, nor did the 5 thru 8 large traders. Ditto for basically all the other silver traders. That left JPMorgan as the sole silver seller, as the COT and Bank Participation Reports clearly document.
  
  Please think about this.
  
  We know that concentration in any market is to be avoided. The whole thrust of commodity law goes towards preventing concentration. We know that the ideal profile of a free market is where a wide diversity of market participants competes on both the buy and sell sides of the market. We also know that the most extreme state of concentration possible is where there is, effectively, only one buyer or one seller. Therefore, what the latest COT and Bank Participation Reports just confirmed was that the most extreme form of concentration possible just occurred during the latest reporting week.
  
  This is the key point – what would have happened if JPMorgan hadn’t sold short the additional 6,000 silver contracts (30 million oz) when they did? Asked differently, in the current market conditions, what price would have been required to induce other market participants to sell the 6,000 contracts if JPMorgan hadn’t sold? My guess is that would have taken a price over $40 or $50 to attract that much legitimate selling. The fact that JPMorgan was the sole seller is the clearest proof possible that silver has been manipulated.
  
  So egregious was this latest increase in JPMorgan’s short position that I am inclined to think that it may have been done on an unauthorized or rogue trader basis. Perhaps JPM management and the CFTC are not yet aware of it, seeing how recently it occurred. After all, the COT and Bank Participation Reports were only published less than 24 hours ago. (As is my custom, I will be sending this article to the Commission and JPMorgan and the CME Group).
  
  I realize that I am making serious allegations of violations of commodity law, as there is no market crime more serious than manipulation. At the very least, this new government data release is so disturbing that it should be addressed immediately. Silence on the part of JPMorgan, the exchange and the CFTC is no longer constructive. If my accusations are off-base, then I should be set straight. I’m not out to cause trouble; I am trying to help correct what I see as a very serious market problem.
  
  I can’t help but think that Chairman Gensler of the CFTC will be troubled by this recent action by JPMorgan to substantially increase its already concentrated silver short position. In recent speeches he has indicated his support for position limits to guard against concentration. Please scroll down to the section on position limits in this recent speech to see what I mean.
  
  Chairman Gensler also solicits your public comments on this issue, as I have done previously. I found it interesting that he singled out position limits in this speech for encouraging you to comment. By the way, the number of public comments on position limits is now close to 3,000, a truly remarkable outpouring of public sentiment.
  
  Please don’t assume that the sharp increase in short selling by JPMorgan is automatically bearish for the price of silver. Yes, such manipulative short selling in the past has led to sharp sell-offs and could again. But things do change and current conditions in silver are vastly different than they have been in the past. While we must be prepared for a sell-off (by not holding on margin), this situation could (and should) blow up in JPM’s face.
  
  They are increasingly isolated which makes them both dangerous and vulnerable. Most of you are holding silver from prices much below the current levels. This bestows on you a power that few newcomers to silver possess, namely, the power of a long term perspective and the ability to withstand short term price gyrations. You have a price cushion and the power of knowledge that should enable you to persevere against any short term manipulation. The proper approach is to hold silver to go much higher and not to lose your position, just as it has been all along.
  
  That aside, you should be disturbed enough about the revelations in the new COT and Bank Participation Reports to rattle on the cages of JPM, the CME and the CFTC. Just as a head’s up, I may make portions of this report available in the public domain if I conclude it will benefit subscribers. Let me think about it a bit. In the interim, please contact these parties if you feel so inclined. You know I will.
  
  Ted Butler
  March 7, 2011

Email addresses for those who wish to contact the regulators:

• ggensler@cftc.gov (Chairman)
  
  mdunn@cftc.gov (Commissioner)
  
  bchilton@cftc.gov (Commissioner)
  
  jsommers@cftc.gov (Commissioner)
  
  somalia@cftc.gov (Commissioner)
  
  jamie.dimon@jpmchase.com
  
  executive.office@chase.com
  
  thomas.lasala@cmegroup.com
  
  dean.payton@cmegroup.com

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Silver update, news and rumours

The email inbox is full of silver questions so I'll make today another post on Silver.

As we wait for the contracts on the COMEX standing for March delivery to be settled to finish Part 6 in our series on "Silver, The Opportunity of the Decade", lets take a look a were things stand.

First off, if you have missed them, you can the first five parts by following these links:

Part 1: Shrinking Supply and Rising Demand.
Part 2: The Comex, what is it?.
Part 3: The Comex Silver Cartel.
Part 4: Evidence of Gold and Silver manipulation surfaces.
And Part 5: The Short Squeeze

To summarize, when JPMorgan Chase bought Bear Stearns in March 2008, it inherited Bear Stearns’ large bet that the price of silver would fall. Over time, it added to that bet, and then the international bank HSBC got into the market heavily on the bear side as well. These actions “artificially depressed the price of silver dramatically downward,” according to a class-action lawsuit initiated by a Florida futures trader and filed against both banks.

“The conspiracy and scheme was enormously successful, netting the defendants substantial illegal profits” in the billions of dollars between June 2008 and March 2010, according to the suit. The suit claims that JPMorgan and HSBC together “controlled over 85 percent the commercial net short positions” in silvers futures contracts at Comex, a Chicago-based exchange on which silver is traded, along with “25 percent of all open interest short positions” and a “a market share in excess of 9o percent of all precious metals derivative contracts, excluding gold.”

In September 2008, after receiving hundreds of complaints that silver future prices were being manipulated downward by JPMorgan and HSBC, the Commodity Futures Trading Commission (CFTC) launched an investigation. The CFTC found that evidence strongly supports the contention that JP Morgan is “flooding the market” with “short positions” every time the price of silver starts to creep upward. By unloading its short positions like a time-released capsule, JPMorgan’s traders were keeping the price of silver artificially low and reaping tremendous profits. The CFTC is in the process of drafting position limits to address this.

In Spring/Summer 2010, JP Morgan dismissed or terminated a number of traders in their commodities division which is lead by Blythe Masters. The rumor is that a number of these disgruntled ex-employees have organized a group that is harnessing the resources of some hedge funds to buy up futures contracts and stand down for delivery. They demand physical delivery of silver, hoping to score a big cash settlement premium if the silver cannot be delivered.

It has been suggested that this was tried, very successfully, for the December contract, executed again (on a larger scale) for the March contract and is a large factor behind Silver's stunning doubling of price since August 2010.

This rumor was brought to different forums and message boards by someone calling himself/herself Wynter_Benton.

The group recently claimed they settled their March contracts in excess of an 80% premium ($60.40 per ounce).

This may sound utterly ridiculous, but the rumor is being taken seriously in many corners and the data from the COMEX regarding outstanding contracts (not to mention the surging price of silver) somewhat supports this theory.

It is clear that the COMEX is stressed to provide physical delivery of the March contracts and that there have been a large number of cash premium payouts.

As last week ended, analyst Harvey Organ provided this update:

• The front delivery month of March saw its Open Interest mysteriously drop from 2040 to 1876. This was done with zero deliveries on Friday and zero deliveries on Thursday. There is now no question that cash settlements in silver are the order of the day. When you have silver longs who pluck over $150,000 per contract into their brokerage accounts waiting for settlement, and then have some of these longs disappear, you can rightly assume that the only explanation is cash settlements. The next front month of May saw its OI fall a bit from 83,718 to 83,398. This was a mixture of some bankers trying to cover some of their shorts and some of the cash settlers picking up more of the May contract with their new found fiat wealth. Word has it that the options in the April month are also high

Harvey also offered up another observation that reflects the massive demand for silver that has been going on.

• What is fascinating is that the March delivery month at 10,895,000 oz is close to the two prior non delivery month of January and February (4.5 million oz + 2.8 million= 7.3 million ). Usually the two months of January and Feb silver totals are anywhere from 10-30% of March's deliveries.

Another interesting tidbit I came across this week (and I can't find the link right now), has to do with the record number of silver eagle sales from the US Mint in January. Over 6 million silver eagles were sold... but apparently 3 million went to ONE buyer.

Recall that in January there was a huge amount of paper shorts issued and the price dropped over $5/oz. The suggestion was that JP Morgan was desperately attempting to drive the price downward in order to facilitate the procurement of silver in preparation of a March squeeze. Were they the buyers of over 3 million silver eagles in January?

Finally Friday brought some interesting observations that could make March/April a wild ride. While pouring over the Commitment of Traders Report from Ed Steerwas moved to observe:

• The Commitment of Traders report didn't show as much improvement in the silver short position as I was hoping. The bullion banks reduced their short position by only 1,333 contracts. The Commercial net short position in silver now sits at 282.3 million ounces. The '4 or less' bullion banks are short 220.0 million ounces...and the '8 or less' bullion banks are short 281.8 million ounces of the stuff.
  
  The other big surprise [was in the] latest Bank Participation Report... The report itself came out late on Friday afternoon...and the first hint that there was something odd about it came in an e-mail from Ted Butler where said there was a "big increase in the Bank Participation report of 6,000 net contracts short in silver by US banks from 19,000 to 25,000."
  
  Both Ted and I were expecting a decrease...and what we got instead was the exact opposite. I must admit that I don't pretend to understand why, because all the signs pointed to a month-over-month decline.

JP Morgan has been gradually decreasing it's short exposure. In the past few months it has been covering to the tune of 11,000 contracts. But now "The Morgue" has suddenly ramped up it's activity by adding 6,000 shorts in February?

This is setting off alarm bells. 6,000 short contracts is 30,000,000 ounces.

Another blogger was moved to comment on this by saying:

• 1. They have to keep shorting... it's their mandate to keep the price of silver and gold down.
  2. They will NEVER take losses on these shorts as they are Too Big To Fail (TBTF) and have offset these in other derivatives and copper etc.
  3. Shorting for 20 years is like an heroin addict going cold turkey - they just can't stop all at once.
  4. Technically speaking, they are shorting into a middle round number in which usually will have weakness or sellers and options to sell, especially after a run like that.
  5. Look at a chart. The RSI and MACD are trending into a reversal soon. You think Silver will straight to $75 in a straight line? Are you nuts?
  6. Get your ball caps on, we are starting the 2nd inning folks.

All signs point to another looming battle like we saw after December when Silver shot up to $31.75 and then was beaten down to $26.20 in January/February.

Where's my popcorn?

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Oh Yeaaah!

Prime Minister Pierre Elliot Trudeau once said that 'People who live at the foot of great mountains are often the last to climb them.'

A succinct analogy about introspective navel gazing that aptly defines Vancouver.

The latest external observer who can see what so many here cannot is Paul Krugman of the New York Times.

Now... I am not a Krugman fan. One of the media's chief promoters of the Keynesian policies driving the Federal Reserve, I have disagreed with a great many of Krugman's columns. But even Krugman appears to be recognizing what got us into the current worldwide financial mess.

Yesterday, Krugman wrote:

• "My take on the US economic crisis has increasingly been that banks were less central than many people think, while the housing bubble and household debt are the key players."

As Krugman comes to grips with this reality he opines that this is why financial stabilization by itself wasn’t enough to produce a V-shaped recovery.

We won't go into the massive amount of debt deleveraging that must occur to rebalance the economy. What stands out is Krugman's next comment.

Looking northward, across the border, Krugman weighs the combination of Canada's ever growing housing bubble with it's ballooning household debt and opines:

• "If I take all that seriously, I should be very worried about Canada."

Those of us who aren't overdosing on the Maple Syrup Kool-Aid are too, Paul.

With each passing month, more and more Vancouverites are convinced we are immune from a real estate-led economic downturn.

Too many people refuse to recognize/acknowledge that emergency level interest rates is the only thing that stands between many families and financial disaster, especially here in Vancouver.

The outcome is not going to be pretty.

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What should unmanipulated Gold and Silver be valued at?

Adrian Douglas, a Director of the Gold Anti-Trust Action Committee (GATA) and editor of the Market Force Analysis Letter offers the following opinion on the true market value of Gold.

• Look... the manipulation can, obviously, not continue. There has never been the manipulation of a market that has continued forever as they all come to a sticky end. And this is the opportunity for investors, the price of gold and silver have been depressed way below their true market values. And obviously when they find their true market values, then the investor is going to make huge gains. The reason why silver has been supressed is because gold has been supressed. And gold has been supressed because it makes the dollar look more valuable than it is and allows the US government to live beyond it's means.
  
  The true price of gold can be estimated by looking at the Fed's balance sheet. They have a line item that essentially has all the Treasury's claimed gold of 261.5 million oz's which the footnote states is the collateral against which all Federal Reserve notes are issued. They have issued approximately 15 Trillion dollars and the collateral is 261.5 million ozs of gold. That gives you a gold price of $57,000/oz. If you have an asset against which the note is issued, that defines that note.

Douglas contends the true market value of Gold is $57,000/oz.

Unmanipulated Silver will return to it's historical ratio of 16:1/10:1 to Gold. Therefore unmanipulated Silver's true market value should be $3,550 - $5,700 per ounce.

In this context, Silver at $130/oz is a no-brainer. And with price jumps like today, $130/oz will come much faster than most people expect.

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Silver Manipulation story goes mainstream. New York Times headlines: 'A Conspiracy with a Silver Lining'

This is the 2nd post today. Make sure to check out the 1st one below this (So what's been happening on the COMEX?}.

The mainipulation of silver prices which we have been outlining this past week is starting to get attention in the mainstream press.

Here is the article from the New York Times:.

• A Conspiracy with a Silver Lining
  
  Accusations that JPMorganChase and HSBC allegedly manipulated precious metal markets are worth looking into.
  
  By William D. Cohan
  
  As Americans know all too well by this point, commodity prices — for corn, wheat, soybeans, crude oil, gold and even farmland — have been going through the roof for what seems like forever. There are many causes, primarily supply and demand pressures driven by fears about the unrest in the Middle East, the rise of consumerism in China and India, and the Fed’s $600 billion campaign to increase the money supply.
  
  Nonetheless, how to explain the price of silver? In the past six months, the value of the precious metal has increased nearly 80 percent, to more than $34 an ounce from around $19 an ounce. In the last month alone, its price has increased nearly 23 percent. This kind of price action in the silver market is reminiscent of the fortune-busting, roller-coaster ride enjoyed by the Hunt Brothers, Nelson Bunker and William Herbert, back in 1970s and early 1980s when they tried unsuccessfully to corner the market. When the Hunts started buying silver in 1973, the price of the metal was $1.95 an ounce. By early 1980, the brothers had driven the price up to $54 an ounce before the Federal Reserve intervened, changed the rules on speculative silver investments and the price plunged. The brothers later declared bankruptcy.
  
  The Hunts may be gone from the market, but there are still plenty of people suspicious about the trading in silver, and now they have the Web to explore and to expand their conspiracy narratives. This time around — according to bloggers and commenters on sites with names like Silverseek, 321Gold and Seeking Alpha — silver shot up in price after a whistleblower exposed an alleged conspiracy to keep the price artificially low despite the inflationary pressure of the Fed’s cheap money policy. (Some even suspect that the Fed itself was behind the effort to keep silver prices low, as a way to keep the dollar’s value artificially high.) Trying to unravel the mysterious rise in silver’s price is a conspiracy theorist’s dream, replete with powerful bankers, informants, suspicious car accidents and a now a squeeze on short sellers. Most intriguingly, however, much of the speculation seems highly plausible.
  
  The gist goes something like this: When JPMorgan Chase bought Bear Stearns in March 2008, it inherited Bear Stearns’ large bet that the price of silver would fall. Over time, it added to that bet, and then the international bank HSBC got into the market heavily on the bear side as well. These actions “artificially depressed the price of silver dramatically downward,” according to a class-action lawsuit initiated by a Florida futures trader and filed against both banks in November in federal court in the Southern District of New York.
  
  “The conspiracy and scheme was enormously successful, netting the defendants substantial illegal profits” in the billions of dollars between June 2008 and March 2010, according to the suit. The suit claims that JPMorgan and HSBC together “controlled over 85 percent the commercial net short positions” in silvers futures contracts at Comex, a Chicago-based exchange on which silver is traded, along with “25 percent of all open interest short positions” and a “a market share in excess of 9o percent of all precious metals derivative contracts, excluding gold.”
  
  In the United States, trading in precious metals and other commodities is regulated and closely monitored by a federal agency, the Commodity Futures Trading Commission. In September 2008, after receiving hundreds of complaints that silver future prices were being manipulated downward by JPMorgan and HSBC, the commission’s enforcement division started an investigation. In November 2009, an informant, described in the law suit only as a former employee of Goldman Sachs and a 40-year industry veteran, approached the commission with tales of how the silver traders at JPMorgan were bragging about all the money they were making “as a result of the manipulation,” which entailed “flooding the market” with “short positions” every time the price of silver started to creep upward. The idea was that by unloading its short positions like a time-released capsule, JPMorgan’s traders were keeping the price of silver artificially low.
  
  Soon enough, the informant was identified as Andrew Maguire, an independent precious metals trader in London. On Jan. 26, 2010, Maguire sent Bart Chilton, a member of the futures trading commission, an e-mail urging him to look into the silver trading that day. “It was a good example of how a single seller, when they hold such a concentrated position in the very small silver market can instigate a sell off at will,” Maguire wrote.
  
  On Feb. 3, 2010, Maguire gave the futures trading commission word about an impending “manipulation event” that he said would occur two days later, when the Labor Department’s non-farm payroll numbers would be released. He then spelled out two trading scenarios about which he had been told. “Both scenarios will spell an attempt by the two main short holders” — JPMorganChase and HSBC — “to illegally drive the market down and reap very large profits,” Maguire wrote in an e-mail to a trading-commission investigator.
  
  On Feb. 5, Maguire took a victory lap, writing in another e-mail to the trading commission that “silver manipulation was a great success and played out EXACTLY to plan as predicted.” He added, “I hope you took note of how and who added the short sales (I certainly have a copy) and I am certain you will find it is the same concentrated shorts who have been in full control since JPM took over the Bear Stearns position … I feel sorry for all those not in this loop. A serious amount of money was made and lost today and in my opinion as a result of the CFTC’s allowing by your own definition an illegal concentrated and manipulative position to continue.”
  
  In March 2010, Maguire released his e-mails publicly, in part because he felt the trading commission’s enforcement arm was not taking swift enough action. He was also unhappy over not being invited to a commission hearing on position limits scheduled for March 25. Then came the cloak and dagger element: the day after the hearing, Maguire was involved in a bizarre car accident in London. As he was at a gas station, a car came out of a side street and barreled into his car and two others; London police, using helicopters and chase cars, eventually nabbed the hit-and-run driver. Reports that the perpetrator was given a slap on the wrist inflamed the online crowds that had become captivated by Maguire’s odd story.
  
  In any case, the class-action lawsuit contends that between March 2010 and November 2010, JPMorgan Chase and HSBC reduced their short positions in the silver market by 30 percent, causing the metal’s price to rise dramatically, but leaving them still with a large short position. Now, with the value of silver rising nearly every day, the two banks are caught in a “massive short squeeze,” according to one market participant, that appears to be costing them the billions they made originally plus billions more. Whether these huge losses will show up on the books of JPMorgan Chase and HSBC remains to be seen. (Parsing through the publicly filed footnotes of derivative trades is no easy task.)
  
  Nonetheless, the conspiracy-minded have claimed that the Fed must have somehow agreed to make JPMorgan and HSBC whole for any losses the banks suffered if and when the price of silver rose above the artificially maintained low levels — as in right now, for instance. (About all this, a JPMorganChase spokesman declined to comment.)
  
  Some two-and-a-half years later, the Commodity Futures Trading Commission’s investigation is still unresolved, and at least one commissioner — Bart Chilton — thinks that after interviewing more than 32 people and reviewing more than 40,000 documents, there has been enough investigating and not enough prosecuting. “More than two years ago, the agency began an investigation into silver markets,” Chilton said at a commission hearing last October. “I have been urging the agency to say something on the matter for months … I believe violations to the Commodity Exchange Act have taken place in silver markets and that any such violation of the law in this regard should be prosecuted.”
  
  What’s more, Chilton said in an interview last week, that “one participant” in the silver market still controlled 35 percent of the silver market as recently as a few months ago, “enough to move prices,” he said, and well above the 10 percent “position limits” the commission has proposed to comply with Dodd-Frank financial reform law. Since that law’s passage last summer, the commodities exchanges have issued waivers permitting the ownership of silver positions above the limits the C.F.T.C. has proposed, and which were supposed to be in place by January of this year. Yet the waivers remain in place, and the big traders have not been penalized, much to Chilton’s frustration And the mystery deepens: last Thursday, the price of silver fell $1.50 per ounce in less than an hour before recovering. “This was robbery at its most obvious and most vindictive,” wrote Richard Guthrie, a London-based trader, in an e-mail to Chilton. “How many investors lost money and positions to the financial benefit of an elite few?”
  
  It’s getting harder and harder to continue to brush off Andrew Maguire’s claims as the rantings of a rogue trader with a nutty online following. The Commodities Futures Trading Commission should immediately release the files from its investigation into the supposed manipulation of the silver market so the public can determine whether JPMorganChase and HSBC did anything illegal, with or without the help of the Fed. In addition, the commission should start enforcing the 10 percent threshold on silver positions it has proposed to comply with Dodd-Frank law. Basically, the other commissioners must join with Bart Chilton to do the job they are required to do: Protecting the sanctity of the markets and preventing the sorts of manipulation we’ve seen all too often.

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So what's been happening on the COMEX?

As you will recall from this post on March 1, there were 4,250 contracts representing 21,250,000 oz of Silver which are standing for physical delivery this week in the delivery month of March.

Furthermore, early evidence from the COMEX seemed to indicate that the COMEX was severly stressed to provide physical Silver for these contracts.

According to analyst Harvey Organ, since then the Open Interest standing for delivery first fell from 4,250 contracts to 2,833 (1,417 contracts settled) but there were only deliveries on 250 contracts. This indicates the rest settled for cash.

(Which as you will recall was the whole objective in the rumour set out in Part 5: The Short Squeeze).

Organ reports that on the second day of settlement, the Open Interest fall from 2,833 contracts to 2,251. But there were only 42 delivery notices, meaning 540 contracts appear to have settled for cash.

(Remember each contract represents 5,000 ozs of Silver).

Yesterday Organ advises that "a miniscule 9 contracts (45000 oz) were served today. This is the third straight day that the deliveries have been tiny which indicate that the vaults are empty of silver metal. 2,242 contractsor 11,210,000 oz remain to be served upon. We have lost approximately 8.4 million oz to cash settlements these past two days."

And the rumour mill is cranking up about those cash settlements.

The same group that purported to lay out the plan for the short squeeze that we covered in Part 5 of our Silver series have surfaced on a couple of chatboards stating that they are amongst the group that have been paid out.

In announcing this development, there are some very interesting claims made. We have no way of validating this and as such it MUST be treated as rumour. However, here is a screenshot of what was posted (click on image to enlarge):

The group is claiming they were paid an 80% premium because the COMEX simply couldn't deliver on the contracts that are outstanding. An 80% premium means that they were paid at an equivilant of over $50 an ounce to go away.

There is no way to confirm if this is true. However, as Harvey Organ notes, for three days the number of deliveries of physical silver has been very small. This is highly unusual and indicates that the COMEX doesn't have the physical silver to deliver to those standing for physical.

In this enviroment, a premium of $50/oz in fiat cash is not unreasonable. And it is you clearest indication yet that silver at $34/oz is not only cheap, but highly undervalued.

More as this story plays out.

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